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India’s push to offer banking for all stumbles on empty accounts  

More than half of a record 160 million accounts opened in India as part of a drive to offer banking to all are still empty, illustrating the massive task ahead for one of the government’s most high-profile campaigns and the strain on banks.

Prime Minister Narendra Modi launched a scheme last August to end “financial untouchability”, an ambitious project to enable tens of millions to have access to a bank. The scheme offers free insurance and even an overdraft facility and aims to eventually help deliver all subsidies and other social benefits to the poor directly.

But while millions signed up – the volume of accounts made a Guinness World Record and Modi hit his target – 53 percent of these accounts have never been used as of June 3, records show.

Activating these accounts will be the biggest test yet for Modi’s banking drive: a push the government hopes will curb the use of cash, limit corruption and rein in the informal economy.

“It’s always been a challenge, particularly in the rural areas where the population is not literate. They are scared actually to go to the bank,” said Ram Sangapure, an executive director at number four state-run lender Punjab National Bank.

Lambodar Mishra, 37, who runs a small grocery shop in the eastern state of Odisha, was one of many villagers the government targeted.

He and his two young sons opened accounts last year but have never gone back to the bank 5 km away from their village.

“Why do I need a bank? Whatever I earn, I put in my business, I buy things to sell in my shop. I don’t earn a lot.”

Many in rural India have been left behind by modernisation.

World Bank figures show a majority of people in India live on less than $2 a day. Low rates of literacy have also deepened suspicion of paperwork and plastic and popularised cash.

Industry experts say payment mechanisms could be improved while the government could provide more subsidies directly – a process which could take several years to complete – to encourage the use of bank accounts.

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